23 March 2010 at 13:13 GMT
FX Update: SNB can't slow franc train
The USD and JPY made a comeback in early trading today as the market pressed the pause button on yesterday's furious risk rally. Gold is trading back below 1100 again after an indecisive day yesterday and bonds are still trading strongly, suggesting plenty of safe haven seeking. The risk aversion was fairly broad, with EM currencies generally also pulling back yet again for the third day after their long string of solid gains. The first major auction of treasury notes (as opposed to shorter term bills) is set to take place today with a $44 billion 2-year auction as the yield has approached the interesting 1.00% level.
On the other side of the Atlantic, the German 10-year yield has crossed into new territory below 3.10% for the first time in almost 12 months. This is helping to weigh on the EURUSD and EURJPY and is a break worth paying attention to in the coming days.
SNB and CHF
The SNB's Hildebrand was out today in Europe declaring the standard SNB line: that it would continue to act to counter excessive gains in the franc exchange rate. EURCHF bounced a bit on the news but then immediately collapsed back toward recent lows, suggesting that there may be more wood to chop. If the SNB really wanted to put a line in the sand at this point, it would have used language like "will not tolerate further gains" etc. So EURCHF looks like it has been given the all clear to move down toward 1.40, even if the pace may need to slow soon to prevent bouts of heavy real intervention from the SNB.
UK Inflation
UK Inflation data came out slightly lower than expected, an important development after all of the attention the CPI has been getting after crossing the 3.0% threshold that triggers mandatory letters from the BoE to the Chancellor of the Exchequer. The implications for lower CPI on BoE rates is theoretically behind the pound sell-off, though much of the sell-off occurred strangely before the actual data release. More modest inflationary pressures are probably actually more helpful than hurtful for the pound at this point as it helps the BoE save face because it looks less like the bank is losing control over the situation. Still, the GBPUSD chart is looking weak again after the recent rally attempt now simply looks like a classic consolidation within an overall bear market.
Chart: GBPUSD
GBP weaker today on lower than expected UK CPI/RPI. The GBPUSD chart looks ugly as yesterday's bullish hammer formation failed to find confirmation today. We're still within the recent range, but does a test of 1.4800 and possibly beyond lie ahead? Resistance now comes in at 1.5045 and the overnight high just below the 1.5125 weekly pivot.
Looking ahead
Treasury secretary Geithner is scheduled to speak before a House committee on the reform of the GSE's Fannie Mae and Freddie Mac, but his testimony was leaked already yesterday (for irreverent looks at this speech, see the ever-cynical Zerohedge commentary and link to actual speech here. Reform of these two instituations will take years - very important for the long term, but hardly any short-term market impact likely
On the economic calendar, we have the US existing home sales up shortly and the weekly ABC confidence number after the US close (a bit more interesting than usual due to the very large positive jump in this index last week). The next big event risks are tomorrow's IFO, which comes as EURUSD is flirting with the lows for the cycle, and the Norges Bank rate decision, which comes just after EURNOK rejected its attempt to push down through the big 8.00 level
And as the over-riding theme, we still have the question of the direction of risk appetite as commodity currencies and CEE and other EM currencies have interestingly taken a bit of a pause in their rally versus the greenback even as equity indices have rallied back towards the top for the cycle.
Economic Data Highlights
- Japan Feb. Supermarket Sales fell -2.4% YoY vs. -4.9% in Jan.
- UK Feb. CPI rose +0.4% MoM and 3.0% YoY vs. +0.5/+3.1% expected, respectively and vs. 3.5% YoY in Jan.
- UK Feb. Core CPI rose 2.9% YoY vs. 3.1% expected and 3.1% in Jan.
- UK Feb. RPI rose +0.6% MoM and 3.7% YoY vs. +0.7/+3.8% expected, respectively and vs. 3.7%
- UK Feb. BBA Loans for House Purchase out at 35276 vs. 36500 expected and 35154 in Jan.
- UK Mar. Hometrack Housing Survey rose 1.3% YoY vs. +0.4% in Feb.
- UK Mar. CBI Distributive Trades Retail Sales Index out at 13 vs. 16 expected and 23 in Feb.
- Canada Feb. Leading Indicators out at +0.8% vs. +0.9% expected and +0.7% in Jan.
Upcoming Economic Calendar Highlights
- US Feb. Existing Home Sales (1400)
- US Jan. House Price Index (1400)
- US Mar. Richmond Fed Manufacturing Index (1400)
- US Treasury Secretary Geithner to Testify before House Committee (1400)
- US Fed's Yellen Speaks on US Economy (1935)
- US Weekly API Crude Oil and Product Inventories (2030)
- US Weekly ABC Consumer Confidence (2100)
- New Zealand Q4 Current Account Balance (2145)
- Japan Feb. Merchandise Trade Balance (2350)